Shanshan expects its revenue to reach 20 billion yuan in 2010. CFP
Japanese industrial and trading conglomerate Itochu recently acquired a 28 percent stake of Chinese apparel company Shanshan for 758 million yuan.
The move will help Shanshan get through the global economic slowdown, said Zheng Yonggang, the company's founder and chairman.
The Ningbo-based textile manufacturer is also cutting back its expansion into real estate, hi-tech, venture capital and green energy in an effort to get through tough financial times.
"We have already liquefied our high-value assets to guarantee healthy capital flow. Under the current market environment, we will trim investment in our peripheral businesses to avoid getting strung out," said Zheng at a corporate conference held at the end of last year.
Shanshan will also use the deal to tap Itochu's expertise, said analysts.
"Shanshan will benefit from Itochu's technology, retailing and managerial resources, at the same time Itochu will take Shanshan's valuable assets in China - its strong brand here - to build its portfolio," said Li Zhixian, textile analyst of Guotai Jun'an.
Zheng, the chairman, said he was eyeing the soft power of the Japanese giant and that business experiences and management skills are something money cannot buy.
Itochu will send four employees to join Shanshan's management team and participate in its daily operations as part of the deal.
"It was time to introduce globalization resources to break the bottleneck," said Zheng, adding that overseas cooperation may help improve corporate governance.
The textile industry in China has slowed since last year as a result of yuan appreciation. Shanshan's sales amounted to 11.8 billion yuan in 2008, an increase of 5.3 percent from the previous year but Zheng said the company will be hard-pressed to come close to that level this year.
He remained optimistic for the long-term, however, and said Shanshan expects its revenue to reach 20 billion yuan and the company's total assets to climb to 100 billion yuan in 2010.
Insiders said Zheng is involved in more negotiates, with Japan-based Mitsui Fudosan Group Ltd, for garment outlets construction in China.
"The possible collaboration with Mitsui Fudosan, along with the Itochu deal, reflects Shanshan's desire to consolidate its apparel retailing business," said Li of Guotai Jun'an.
Business concentration helps private companies capitalize on their strengths and snatch market share when competitors become too prudent and frugal, said Li.
